The "Nuts and Bolts" of Construction Software By Sheldon Needle, President, CTS
There are some pretty major differences in how software for contractors operate. Some of these differences are significant; others are not that critical to the methods of operation by the contractor. How does this net out for the contractor looking for software?
What are the implications? One has to first of all know his/her particular business, i.e. what your requirements are for running the company, and to pay close attention to the details when looking at packages so that your business methods are not in conflict with the software you select. This sounds like a simple task but this is no small order when shopping for software.
Accounts Receivable
What kind of billing do you do? Do you issue time and materials or cost plus invoices? In either case, you’ll want to check how the system integrates job cost with billing and how much flexibility it provides in modifying your invoices. Do you issue draws in AIA format? Do you do service work and have a need for invoices to be issued from work orders?. Based on your key operational requirements you’ll want to concentrate on how the prospective package handles those requirements.
General Ledger/ Financial Reporting
Areas that distinguish systems are in the areas of budget tracking (multiple budgets and revisions), intercompany accounting for use with multiple entities (with automatic intercompany entries based on a single journal entry). You will also want to pay close attention to the report formatting capabilities. Does it handle basic column formats only or will it also let you do row formatting with calculations? Key issues for reporting are ease of use and power. Most of the time custom reports will have to be built to meet all your reporting needs.
How easy is it to handle consolidations? Do you need to roll all entities together with automatic eliminations or is it a matter of combining specific companies? You should see how easy it is to accomplish this in the different packages.
Cash management can range from simple cash flow projections to full blown cash management capabilities including complete bank reconciliation, cash flow reports and float information on bank accounts. Some systems will even include cash flow projections based on outstanding AP, AR and PO’s. Some systems have separate cash management options while in others this function is within the general ledger or accounts payable modules. Only a few packages can handle foreign currency requirements.
Payroll
Union payroll is a big item for contractors. Be sure to evaluate how the software computes union benefits and deduction calculations. Most systems are pretty flexible. Just be sure the software can handle the way the union does it e.g. deduction percentages taken before or after taxes. Union reports are another potential stumbling block. Some system are very flexible, and can report to a specified union format, while others can be more challenging. If the vendor cannot perform the format you need out of the box, it may take a lot of work for you to create the necessary union reports!
Collecting payroll data from remote locations is another major differentiator. The first issue is how is PR data collected at the remote site (e.g. time card machines, computer entry, etc.) The next question is how to get the data from the field to the home office computer. Variations here can involve batch file transfers, direct entry from the field to the home computer via special server software and the like. Look at the need for real-time information and the amount of effort needed to make the transfer. Some packages may even offer a web interface for data entry/reporting from remote locations.
Similar to GL, making intercompany payroll entries where one entity processes the payroll for other entities can be a major item for some companies. You’ll want the system to make all necessary intercompany entries for you. Most systems can handle all the basic PR tax reports.
Accounts Payable
An important issue in AP is the early warning (also known as "alerts") capabilities of software. For example, you may want the system to warn you on subcontractor insurance expiration dates or when an expense transaction causes you to go over budget. Different systems provide different levels of warnings during invoice entry.
Integration between Accounts Payable and Purchase Orders
What are your needs for updating purchase orders and creating AP vouchers? Systems handle receipts against PO’s and voucher creation differently. Some systems will automatically create a voucher based on a PO receipt and let you set tolerance levels for acceptance. Also, commitment accounting is important for many users who want to be able to track purchase orders against budgets and receive a warning when an AP entry causes them to exceed budget!
Another interesting variation is how the system handles unapproved invoices. Some will let you set a flag to indicate they have not yet been approved and will not post to job cost or GL until they are approved. Some systems will even offer “Compliance groups.” These are user defined parameters (e.g. receipt tolerances, cutoff amounts for subcontract, etc) set up for subcontracts and PO’s which will check to see that invoices entered meet compliance for that group. When compliance is exceeded, the system issues an alert to the operator.
Job Cost
The main issue for job cost is integration. You will want to carefully investigate integration between job cost and other modules such as scheduling, project management, and estimating. How easy is it to move data between these applications and to make changes? This is particularly important for larger contractors. Project management and document control is another major need for contractors. Users want to move to a paperless office. Does the package support this? Some of the packages support web-based project tracking and updating.
Input and Uses of Percent Complete Reports.
How detailed do you want these to be? Some systems will project cost to complete by cost distribution based on different factors.
Job cost reporting is an area where major differences exist between systems. You’ll want to review the system’s standard job cost reports to understand the data source for the reports and how easy it is to develop new reports or modify existing ones.
Equipment
How do you want to handle tracking equipment costing and preventative maintenance? Do you want a visual maintenance tracking system? Do you need to charge equipment usage to jobs? Some systems will track tool usage through their equipment modules. How does the system handle depreciation costing? What are your needs for integration between PO and equipment for purchases of parts for maintenance?
Inventory
Systems vary in inventory costing capabilities. Some systems provide a variety of pricing mechanisms (i.e. LIFO and FIFO), while others are limited. Can you update inventory with an outside pricing service? It is also important to gain an understanding between the integration (or lack of it) of the inventory, purchasing and estimating databases.
Purchase Orders
Some systems can create PO’s based on estimates. This sophisticated capability is important for homebuilders. Another consideration is how the system handles PO backorders.
Summary
When choosing software, it is crucial that users focus on looking at product differentiators that match closely with user priorities. That is the only way you can be sure you are going to get what you need from a given vendor.
CTS, President, Sheldon Needle, For A Free Construction Software Selection Kit, visit www.ctsguides.com/construction.asp |
